Yes, there is an error in the way Turbo Tax computes Michigan Sch 1, line 1. TT oversimplifies this input (you don't have a way to input it on Mich inputs, it automatically populates based on Fed 1099-INT/DIV inputs). In my case, I had Tax Exempt interest from Muni Bonds. Using round numbers here, $50k Tax Exempt interest and $25k for Bond Premium for a final tax free $25k tax exempt int on FED 1040 line 2a. An average 50% Bond Premiumfor all tax exempt bond interest, Michigan and otherwise. In my case, my Michigan Bond Premium was only 30%, which (see your year end report). TT uses the overall average of 50%. So 50% was subtracted from the Michigan only interest instead of 30% to determine the net non-Michigan Tax Exempt interest for auto entry for Mich Sch 1, Line 1. The net (gross) non-Michigan number for this input that is too high and resulting in a higher Michigan tax. The simple way around is to artificially adjust your Michigan Tax Exempt interest portion upwards on the FED taxes until Sch 1 Line 1 matches the number it actually is. All this info is in your year end summary that is not reported to the IRS. You need to keep detailed notes of what you did in your tax records that will be easily explained to any auditor if that happens. Turbo tax should allow for you to use your year end summary data supplied on your 1099 to input info into Michigan Sch 1 for this. I assume it was oversimplified by TT to make things easy to produce TT software. There is a manual way to override TT inputs, I just forgot how. Will dig it up.
